Friday Options Recap

by: Frederic Ruffy


Stocks are mixed on a relatively slow news day Friday. The only economic stat was the Consumer Price Index, which was unchanged in November. Economists were looking for a .1 percent increase. There was little reaction to the data. Instead, the Dow Jones Industrial Average rallied in morning trading and had staged a triple digit gain in the first hour. Those gains were lost, however, as the Quadruple Witch expiration stirred up some intraday volatility and choppy market action. Unsubstantiated chatter about further downgrades of European sovereign debt seemed to weigh on trading. Another decline in crude, which is now little changed at $94 per barrel, was getting noticed as well. However, overall market action is uninspired after the hefty losses seen on Wall Street Monday through Wednesday. The underlying tone remains cautious. The Dow Jones Industrial Average is now flat. The tech-heavy NASDAQ gained 16. CBOE Volatility Index (.VIX) is down .53 to 24.58 and probing its late-October lows. Meanwhile, trading is active due to the expiration. 7.4 million calls and 7.7 million puts traded across the exchanges so far.

Bullish Flow

Delta Airlines (NYSE:DAL) is up 48 cents to $9.07 today and has rallied 22.1 percent since AMR announced bankruptcy plans on 11/29. One player seems to expect the gains to continue through the first quarter of 2012 and apparently rolled a position in 5000 Dec 9 calls at 5 cents to a Mar 7 - $11 bullish risk-reversal at a penny, 5000X. 6 cents was collected on the package and the March combo looks opening.

Bearish Flow

Research In Motion (RIMM) is down $1.73 to $13.40 and is reeling today after the BlackBerry-maker reported disappointing results after the close of trading yesterday. The stock is falling to its lowest levels since 2004 and options volume is running 5X the daily average. 330,000 puts and 187,000 calls traded on the stock so far. The top trades were initiated in morning action after on strategist sold 33,700 January 15 puts on RIM at $2 per contract and bought 41,000 January 13 puts for 88 cents. The massive ratio spread is possibly a roll of in-the-money puts to out-of-the-money puts -- probably a bet that the company's woes continues over the next five weeks. However, implied volatility in the options on the stock is down 27 percent to 69 now that the earnings event-risk has passed.

Microsoft (NASDAQ:MSFT) adds 32 cents to $25.88 and the top trade on the software-maker today is an 18,600-contract block of Dec 26 calls at 6 cents per contract. Shares hit a morning high $26.17 and players are likely closing out positions in these expiring at-the-money call options. More than 50K traded against about 60K in open interest. The contract is now .5 percent OTM heading into second half of trading and the market is 3 to 4 cents.

Implied Volatility Mover

Implied volatility in Lender Processing Services (NYSE:LPS) is moving higher amid weakness in the shares and high options volume after the Nevada AG filed a suit against the company for customer fraud. LPS is down $1.75 to $15.59. 5200 calls and 11,000 puts traded on the stock. The top trades look like a Mar 14 – 18 bearish risk-reversal, bought for 75 cents, to open and possibly initiated by a shareholder to “collar” a position in the stock. Meanwhile, implied volatility in LPS options has jumped 33 percent to 66 percent on the heels of the bearish headline.

Unusual Volume Movers

Bullish flow detected in American Capital Agency (NASDAQ:AGNC), with 9268 calls trading, or 2x the recent average daily call volume in the name.

Bullish flow detected in Inhibitex (NASDAQ:INHX), with 6602 calls trading, or 3x the recent average daily call volume in the name.

Bullish flow detected in Cablevision Systems (NYSE:CVC), with 2429 calls trading, or 7x the recent average daily call volume in the name.

Unusually high options volume is being seen in Yahoo (YHOO), DR Horton (NYSE:DHI), and GM (NYSE:GM).